Venture Russia 2019: Results

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www.dsight.ru [email protected] Venture Russia | 2019: Results

Contents

Methodology 4

Venture Russia: Greetings 6

Interview. Deeptech startups and the era of corporate accelerators 8

Summary of 2019 results Deals shrink in number 12

Record high exits at the later stage 14

Venture deals set a record 17

Average value per deal doubles 18

Accelerator-nurtured startups account for 1/3 of deals 20

Government yet to live up to market expectations 22

Corporations wager perceptibly on the venture market 24

Logistics and edtech win the hearts of investors 26

A year of conflicts 32

Russian businesses return to public markets 33

The Venture World In partnership with Crunchbase The venture market cools 38

News stories Key transactions of the year as reported by EWDN.COM 43

The data source for graphs and tables is Dsight, unless otherwise indicated

3 Methodology

In this Report, we used methodological recommendations comes from corporate founder’s internal sources and that have been put by the domestic venture capitalists. whose investment activity is not limited to exclusively The “venture investment” term describes an investment supporting affiliated companies. of up to $150m (at an official ruble / dollar rate current at the time of writing) in risky technology projects that Analyzing the overall value of Russia’s VC market, promise an IRR of at least 15%. we did not consider exits and investments in market infrastructure. “Investment in market infrastructure” “Investment” is referred to as a purchase of a shareholding is referred to as investment in venture funds, business or charter capital in a privately-held legal entity and / incubators, accelerator programs, technoparks and other or access to a convertible loan under various payback institutions that operate in the VC market but are not terms. An investment can come from both funds (as legal venture companies. entities under Russian or foreign jurisdiction possessing enough capital from one or more sources to invest While a grant is a gratis subsidy for R&D, we did consider in privately held companies and promoting themselves them as contributions, alongside repayable investments, as such in the market) and private individuals / groups to the development of commercially driven venture of such individuals. projects.

When assessing volumes and dynamics for Russia’s “Exit” is referred to as a special type of deal which results VC market, we exclusively took into account venture in no additional investment in a project; instead, one or investments in companies that predominantly operate more shareholders sell their stakes to a strategic investor in Russia. or in an IPO.

Deals involving Russian investors and investment recipients that are focused on markets beyond Russia were not considered in this Report as contributors to the overall value of Russia’s VC market.

Investment-related information used in this Report is first and foremost the information that became publicly open through the media, blogs, corporate websites, public presentations and startup databases. In any other instance, we contact a newsmaker, or source, for confirmation. Describing “corporations” in this Report, we refer to corporate funds whose capital

4 Venture Russia | 2019: Results

For the purposes of this Report, all venture Development stages for an investable projects come within four sectors, including: startup: 1. BioTech 2. Industrial Tech Seed 3. Software & Internet — B2B An early development stage between the formulation 4. Software & Internet — B2C of an idea and the building of a team, new hypotheses verification, and the start of commercial activity. BIOTECH: projects in the field of healthcare, pharma, diagnostics and medical equipment. Startup An early development stage, at which a company begins INDUSTRIAL TECH: laser, energy-related, ongoing and full-fledged commercial activity with sales space, robotics, environmental protection and other proceeds and plans for growth. technologies for use in industry. Growth SOFTWARE & INTERNET — B2B: apps and web- A hyperactive company development stage, when based services with legal entities as customers. This commercial hypotheses are corroborated, and the subsector includes, among other things, business business needs external funding for explosive growth. management and marketing solutions and IT product development. Expansion A hyperactive company development stage, when the SOFTWARE & INTERNET — B2C: apps and web- company steps up business and enters into new markets. based services with individuals as customers. This subsector includes e-commerce, content providing, Maturity search, consumer finance, education, games, social A stage of sustained and unremitting growth—less networks and other consumer-focused services. dynamic, perhaps, than at the previous stages, which reduces investment risks considerably.

5 Venture Russia: Greetings

We said our farewells to the year and corporate accelerators. 2019. It was tortuous, sweeping, and In the past couple of years, niche tremendously important. Despite funds sprang up in segments such economic woes, the Russian market as fintech, agritech, sports tech, and gained some weight. industrial tech. New angel investors and micro VCs are surfacing. Our dear Reader, all the key trends will be highlighted down below in this Mired in financial scarcity, many report, but as an introduction please independent funds refocused on fresh let me share some of my personal business models. Some offered Arseniy Dabbakh, observations of what Venture Russia venture loans; others launched ven­ Founder of Dsight has to show: ture builders or studios. The latter model makes them active business • Advanced investment stages teemed developers rather than just investors, with time-tested PE funds and family as the funds increasingly act like offices as those were pulling out all the co-founders of a startup, taking the stops to avoid much risk. a substantial share in its capital.

• At mid-level stages (A/B round), All private VC funds, with few I watched government VCs step up exceptions, set their sights on inter­ activity; they spawned funds and national projects or Russian ones that an assortment of support initiatives operate globally. (National Technology Initiative grants, Industry Development Fund The year 2020 will likely see state- loans, and many more). owned funds and corporations, both private and parastatal, bolster their • The pre-seed/seed stage, a traditional market involvement. fiefdom of angel investors, is being actively colonized by corporations

Dsight is a BI (Business Intelligence) platform, with a focus on the technology market. The company helps corporations and investors in monitoring industry technologies, forming a pipeline and exploring markets / startups around the world. Dsight releases Venture Russia reports. The founders of Dsight are Arseniy Dabbakh and Sergei Kantcerov.

6 Venture Russia | 2019: Results

Russia’s venture market is currently with the publishers of this report we shifting to corporate investment scrutinized and described the most domination; big companies are crucial of them. I hope the study will developing VC funds as their integral be advantageous to both potential divisions. Startups find it interesting investors and startups that seek to pool their efforts with deep investment. pockets as these are more than just co-investors—corporations open the door to a market for them. All this increasingly causes investment in Vitaly Mzokov early stage start up teams to drain. Head of Innovation Hub, These are just two key factors that Kaspersky triggered off a change in the venture landscape last year. In partnership

EY continues to watch Russia's ven­ identify innovative solutions. We ture market development with our believe that the search for the most partners Dsight. Despite fewer deals, successful technology scouting and total investment in the market grew implementation methods will remain 13% yoy in 2019 to reach $868.7m, a priority for big businesses both and a number of large exits helped set domestically and internationally. a $5.55bn record. Foreign investors EY, in its turn, will carry on paying joined in last year; HeadHunter close attention to the development held an IPO in the U.S.; and all this of startup ecosystems, including prompts us to hope that international the launch of our own acceleration Dmitry Pozdnyshev, capital may stop viewing geopolitical programs. Director, EY Innovation factors as a major hindrance down Development, Russia & the road. Another noticeable 2019 CIS trend was the more significant role which startup accelerators began to play in helping corporations

In 2H 2019, we noted stronger demand of from a number of considerable for legal support of deals over in “Russian-rooted” IPOs that were AI, edtech and fintech projects; we held in 2019 expect this trend to solidify in 2020. One of the most essential emerging trends is a growing effort on the part of both government and private corporations to get gain a firmer foothold in the venture market by setting up investment Denis Belyaev partnership-based corporate funds Partner in Corporate and by launching a variety of startup Practice, DS Law acceleration programs. In 2020, we also expect positive after-effects

7 INTERVIEW Deeptech startups and the era of corporate accelerators

Vitaly Mzokov, Head of Kaspersky Innovation Hub, answers questions from Dsight co-founder and CEO Sergei Kantcerov.

8 Venture Russia | 2019: Results

Sergei Kantcerov (SK): What is it about open innovation SK: Does that mean you’re only interested in Russian and the technology market that interests you? projects? Or are foreign startups of interest too? Vitaly Mzokov (VM): Open innovation provides an VM: Foreign startups are, without a doubt, very important opportunity to speed up the market penetration of our for us. That’s why in 2019 we launched a new global solutions. It’s possible to implement product concepts initiative — the Kaspersky Open Innovation Program. As internally using our own in-house development, but part of this initiative, the iHub looks around the world that’s a much longer process. The alternative is to involve for interesting startups with MVP and the first revenue startups that already have a product, customers, sales, which we could work with to bring innovative products etc. In this case, the partnership between the corporation and services to the market. Apart from additional revenue and the startup results in some interesting technological and new solutions, we are also forming a deal flow with solutions. the prospect of working together on advantageous terms with startups that have shown good results. Practice shows that foreign and Russian startups differ. As a rule, overseas startups are better at positioning their During the selection process, we scout the market for product on the global market, while Russian startups have suitable startups, validate the technology base and business well-developed technologies. Russia has a very strong prospects, sift out and select the best startups for piloting engineering school and a large number of technological and scaling. startups, but they’re not very good at selling themselves, especially on foreign markets (though it’s not always In October 2019, we announced the results of the first necessary for all startups to immediately enter selection process. We received a total of 258 applications international markets). As a global technology company, from all over the world in four areas: transportation, we offer startups extensive business expertise and can blockchain, anti-fraud (combating internet fraud) and ensure their expansion into the global market through the Industrial Internet of Things (IIoT). The 12 best projects our infrastructure. reached the final and were presented at the Demo Day in Milan. A jury of top managers from Kaspersky and SK: What have you already done in the field of startup independent experts voted for the four winners with whom ‘incubation’? we are now working. VM: We have been developing startups at Kaspersky for several years now. One way or another all of them in are SK: How will the new startups develop? related to our main specialization — information security. VM: We conducted a pilot with each of them and the concept In 2017, the first project called Polys — an electronic for the new products is currently being developed. There voting system based on blockchain technology — was are two possible scenarios for further joint development: launched on the market. Shortly afterwards, we launched Kaspersky Security Awareness, a product line for First, the startup can be developed within the framework increasing digital literacy. Since then, projects have been of a white label partnership. By that, I mean implementing launched on both domestic and international markets the startup solution’s technologies in a Kaspersky end and are generating substantial profits. product in order to improve that product. Obviously, in that case it’s only possible to promote the startup via In the past we worked with company employees who our channels. had an idea for a product and a basic business plan. We helped them build a team, finalize the solution and use The second option is partnership, which is also divided Kaspersky’s marketing and sales channels. into two blocks: the creation of a joint product under the Kaspersky brand and its promotion within our existing The Kaspersky Innovation Hub (iHub) is currently market, or the creation of a joint solution and its promotion developing several projects — from Kaspersky through co-branding. In the latter case, both brands promote Antidrone, designed to protect civilian objects from the product, with each brand using its own channels. drone intrusions, to the Verisium blockchain platform for scanning protected NFC chips to check for counterfeit SK: Would you say your experience of attracting startups goods or to communicate with customers. All these has been successful? Do you plan to continue? projects have Russian origins, i.e., the project creators, VM: We consider the first round of selecting startups the development team — even the marketing support to have been a success, so we intend to proceed with is Russian. several more events like this in the future; two of them

9 Deeptech startups and the era of corporate accelerators

Russia has a very strong engineering school and a large number of technological startups, but they’re not very good at selling themselves, especially on foreign markets (though it’s not always necessary for all startups to immediately enter international markets) are planned for the first half of 2020. Each round will Yet another notable trend is for state corporations be dedicated to a specific theme or audience and be to create their own venture funds, often together with related to cybersecurity. This year, we’re planning to cover state funds. We’ve observed this trend over the last couple the following themes: ‘Digital security for the family and of years and, according to our forecasts, it will continue home’ and ‘Information security for small and medium- to develop in the future. sized businesses’. SK: In your opinion, which industries will be the most SK: How would you assess the trends of the Russian attractive for investment in 2020? venture capital market? VM: In the early 2010s, startups like marketplaces and VM: There has been a noticeable decline in the number various aggregators were very popular. But that era of investments in startups at their early stages and is in the past. Today, the most prospective projects are the level of ‘angel’ investments remains low. Apart focused on deep technology and narrow specializations — from that, the venture capital market in Russia is moving so-called deeptech startups. They are increasingly towards corporate investments. Big companies have in demand. Their areas of expertise include such promising started to develop venture funds as separate units. fields as machine learning, 5G networks, the Internet Startups, in turn, are interested in joint work with of Things (IoT), medical technology, industrial security corporations, as large companies are not only co- and personal data protection. investors but also would-be customers. Furthermore, startups planning to sell their products see a potential opportunity to enter the market in collaboration with corporations.

Today, corporations have the financial resources to invest in already established startups — technologies around which they can build business.

10 Summary of 2019 results Deals shrink in number

A total of 230 deals were closed last year, a decrease of 1.5 times compared to 2018. All VC project stages save expansion saw a decrease in the number of deals. The average value per deal grew across segments at stages from seed to maturity, which helped the year end up with a 13% boost in total investment ($868.7m, excluding exits) compared to 2018. At the maturity stage, the average value per deal increased 1.6 times to $78m. The seed stage witnessed a tripling of the average value per deal from $0.1m to $0.2m, surpassed only by the startup stage which swelled (comparatively) from $0.3m to $1.1m — against the backdrop of a shrinkage in the number of deals at both stages.

The winding up of several acceleration programs prevented deals from multiplying. At the seed stage, the number of deals fell 30% to 108. The government-owned Internet Initiatives Development Fund (IIDF aka FRII)‘s decision to back down on new startup support in favor of the search for strategic partners for its existing portfolio projects was one of the demotivators, slashing away at the number of deals with FRII involved (down more than 50% from 2018). Winno, known formerly as the Numa fund, also reined in its activity a bit (from 9 to 7).

2018 Number Investment amount, Average value per deal, 2019 of deals $M $M 142 12.3 0.1 Seed 108 26.1 0.2 78 22.8 0.3 Startup 48 50.4 1.1 63 128.1 2 Growth 44 139.1 3.2 17 126.9 7.5 Expansion 24 184.1 7.7 10 478 47.8 Maturity 6 469 78.2 310 768 2.5 Total* 230 868.7 3.8 37 349.7 Exits 38 5557.5 * Hereinafter — without exits

12 Venture Russia | 2019: Results

In 2019, investors elected to play big, with individual investments going up, mature companies showing intelligible business models, and predictable money flows preferred.

The number of early-stage deals increased in 2H 2019

Maturity 19 Expansion 5 4 46 10 11 Growth 44 6 8 6 28 Startup 19 35 Seed 10 5 33 56 1 41 48 19 5 40 22 23

54 21 80 26 72 24 22 66 62 59 43 49 31

1H 2H 1H 2H 1H 2H 1H 2H 2016 2017 2018 2019

In our study, we used the classification of investors into: angels, corporations, private funds, state funds and corporations. Also, for the purpose of analysis, we divided the deals into a different classification, you can see the final data in the table below. 2018 Number Investment amount, Average value per deal, 2019 of deals $M $M 141 11.1 0.1 Accelerators 52 5 0.1 33 19.2 0.6 Angels 36 42.3 1.2

Corporations, 42 215.2 5.1 Corporate Funds 23 192 8.4 15 184.8 12.3 Foreign investment 15 218.4 14.6 65 266.5 4.1 Private funds 75 330.2 4.4

State Funds and 14 71.2 5.1 Corporations 29 80.8 2.8 310 768 2.5 Total* 230 868.7 3.8

13 Record high exits at the later stage

While in 2018 overall exits barely reached $349m, last year the indicator mushroomed an impressive 16 times to $5.55bn, setting an absolute record for Russia’s VC market and paving the way for Russia to hopefully join the top 10 of the world’s largest venture economies. The number of exits increased by one compared to last year — 38.

The owners of large Internet companies reaped the sweetest harvest. For example, Andrei Andreyev and the Finam investment holding company successfully sold MagicLab, a 13 ‑year-old company that owned the dating apps Badoo, Bumble, Chappy and Lumen, to Blackstone Group in a notable $2.85bn deal. The second-largest exit was the sale

Activity dynamics: big investors

Number of deals Investment amount, $M

99 437 96 94 91 88

86 83

71 67 61 273 62 62 258 56 59

48 200

171 157 152 144 30 140

103 97 99

64 60

37 28

1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18 2Q 18 3Q 18 4Q 18 1Q 19 2Q 19 3Q 19 4Q 19

14

Record high exits at the later stage

of Avito, a sizable classified ads platform, to a South African fund called Naspers. In this $1.16bn deal that gave Naspers the controlling stake and valued the Avito business at $3.85bn, it was Avito’s minority shareholders that drove the move: Swedish Fund Vostok New Ventures (13.3%), Geliria Holdings, a subsidiary of Baring Vostok (4.2%), and the founders and managers of the company who had collectively held 14.6%. In the third- largest exit, Nginx was sold to F5, a U. S. cloud service developer, for $670m. Russia’s Runa Capital was one of the first investors in Nginx.

Alongside the above mature businesses, growing companies, too, basked in investor attention. They raised a total of $139.1m, with the purchase of the bus ticket aggregator Busfor by France’s BlaBlaCar clearly standing out. Dsight believes that the deal brought the Busfor founders an estimated $88m.

Another story to note is Mail.ru Group. In an effort to outpace Yandex, Mail.ru swayed Sberbank into a joint move in foodtech (Delivery Club, SberFood) and in transport (Citimobil ride-hailing service, YouDrive car sharing). The two are believed to have invested in their shared business in excess of $1bn.

An estimated $50.4m went into startups. For example, Gazprom-Media shelled out $20m for Getintent, a provider of online advertising solutions. The sellers were AltaIR Capital and FlashPoint VC (former Buran VC).

16 Venture deals set a record

Total investment reached $868.7m, a yet unrivaled record set across Russia’s venture segments and a 13% yoy increment built predominantly on later-stage deals. The latter came as nearly a replica of the 2018 situation: it’s only in the number of deals at the advanced development stages that the year 2018 outshone 2019. The most eye- catching transactions included an increase in Baring Vostok / AFK Sistema’s shareholding in Ozon (up 8% to $50m), followed by a $150m convertible loan to Ozon in April; and a notable $147m investment Goldman Sachs made in Acronis, a developer of solutions for safe back-ups and data protection/retrieval.

Seed- and startup-stage projects raised double the investment they had to had a year before ($26.1m total and $50.4m total, respectively). Accelerators fueled the growth, while corporations bet on mature projects.

Activity by type of investor, $M Activity by type of investor, number

2018 2018 203 2019 2019 427

367 361

157 313

64

69 33 37 29 47 34 10 19 7

Angel Corporation Fund State Angel Corporation Fund State

17 Average value per deal doubles

Last year, the average value per deal ($3.8m) was twice that in 2018 with the maturity stage driving all the growth (up 60+% to $78.2m). This is a trend that shows investors’ much assuaged appetite for risk and clear focus on projects with comprehensible business models and calculable finances. The year’s largest deals we looked at earlier corroborate the trend: increased Ozon shareholding; Goldman Sachs investing in Acronis; or Access Industries, Baring Vostok, MCI and Volkswagen injecting $120m into Gett in yet another investment round.

Average value per deal growing at all stages, particularly later ones, $M 78.2

2018 2019

47.8

7.5 7.7

3.2 3.8 2.0 2.5 1.1 0.1 0.2 0.3 Seed Startup Growth Expansion Maturity Total

18 DS Law – your trusted legal partner on Venture Capital market*

5 / 100 / $200M

years transactions investments

Alexander Filimonov Denis Belyaev Senior partner Partner PQE 15+ PQE 12+

fi[email protected] [email protected] +7 985 767 0937 +7 925 563-57-67

Smart legal solutions for high tech business

*On March 1, 2020 DS Law, KIAP and BLC will ocially finish the consolidation of the three companies under one single brand Accelerator-nurtured startups account for 30% of deals

Startups that have had their schooling in resilience at accelerators fare better when it comes to fundraising. In 2019, there were more than 70 such projects. That comes as no surprise, as accelerators weed out unviable projects while helping good ones get a toehold in a market with targeted PR and promising investor connections. All model their strategies on YCombinator, the world’s pioneering acceleration program that has meted out $207m in project support since 2005. Of 11.000 projects funded, 80% raised money from investors at later stages.

In 2019, the Internet Initiatives Development Fund (IIDF aka FRII) held two acceleration rounds and backed 29 projects, of which many then joined the GoGlobal international development program. Starta Accelerator funded 11 of its accelerated startups. In summer, Winno Moscow picked eight startups for nurture.

Russia’s VC market is developing, and many founders elect to seek funding from large corporations rather than sell their stakes to the next venture stage investor. Accelerators guide companies in business ecosystem development, help them navigate through possible diversification, and train them in efficient spending.

2019 VC investments by round, number

113 Angels Corporation Fund State

27 24

12 12 9 9 4 4 4 4 5 1 1 1 Seed А В С+

20 Venture Russia | 2019: Results

Large companies view their corporate accelerators as a permanent tool to search for innovation. Startup acceleration is part of corporate strategies at Sberbank (in partnership with 500 Startups, SberUp), Kaspersky Lab (iHub for projects in the field of CyberSecurity), MTS (MTS StartUp Hub), Qiwi (Qiwi Universe Product Hub), or Severstal (projects in metallurgy). Multi-corporation acceleration programs have also begun to emerge to serve an entire sector — such as Build UP that promotes modern construction technologies and is being implemented jointly by three sector players (Gals- Development, Don-Stroi-Invest and Fodd) in partnership with the Skolkovo Foundation.

The market expects much from acceleration programs initiated by government-owned giants. In 2019, Russian Helicopters, Rosatom (nuclear energy), Russian Railways, VTB Bank, State Transport Leasing Co. and KamAZ (truck manufacturing) launched their own accelerators. Russian Railways has already invested in seven startups; VTB has supported twelve. Demand for such incubation initiatives across corporations is only expected to grow year after year.

2019 VC investments by round, $M

Angels Corporation Fund State

173 177

154

90 93

67

26 23 17 15 16 7 4 8 0.35 0 Seed А В С+

21 The international standard Government yet to live up for Russian venture news to market expectations ewdn.com/finance

Government institutions are slow to invest. VEB Innovations, the investment arm of VEB Bank, was rebranded in summer into VEB Ventures with plans to invest almost $544m in Russia by 2024. It inked $31.3m worth of investment agreements with seven Russian companies. But deals are still few — large though they appear to be. For example, it invested $7.8m in Group OZ, a domestic manufacturer of refractory materials.

In the summer of 2019, Russian Venture Company (RVC) and the federal Ministry of Economic Development signed on to a joint $109m fund to support edtech developers for ten years. The money was to come from federal coffers. RVC hasn’t selected any management company by the open tender because none of the applicants was consistent with all the requirements. The Board of Directors of RVC has decided to select management companies through a special procedure. According to this procedure, the independent commission will be searching and selecting management companies throughout 2020. After the approval, 100% of the management company will be transferred to the selected team. Before then, no investments or management fee payments will be made. Therefore, as the result of the special procedure, the fund will be established on the standard VC market conditions and will be managed by a competitive team.

Corporations focus on В2В, while funds on В2С, $M

BioTech Industrial Tech East-West Digital News is the first international news, research and 305 Software & Internet B2B consulting agency dedicated to the vibrant tech markets of Eastern Software & Internet B2C Europe. Get in touch with us at [email protected]

184 171 Dowload EWDN’s latest research

103 on Russian e-commerce and related investment activity 29 19 12 15 11 5 6 8 0 0 0 0.35 https://www.ewdn.com/ecomreport/ Angels Corporation Fund State

22 The international standard for Russian venture news ewdn.com/finance

East-West Digital News is the first international news, research and consulting agency dedicated to the vibrant tech markets of Eastern Europe. Get in touch with us at [email protected]

Dowload EWDN’s latest research on Russian e-commerce and related investment activity https://www.ewdn.com/ecomreport/ Corporations wager perceptibly on the venture market

In 2019, corporations did better than they had a year before and accounted for about 30% of all venture investments. While the investment that came from corporations grew 15% to $361m, the number of their deals decreased by 50% — a clear manifestation of their wish to bet on sure (and mature) players.

Mail.Ru Group with its 13 transactions was one of the most passionate VCs. The firm spent more than $106m on venture investing. It made a splash with its notable $45.5m investment in YouDrive car sharing and $20m injected in Skillbox, an edtech project. The Internet colossus also looked keen to explore the foodtech market — and bought into the Instamart food delivery service and Performance Group, a service that is developing balanced meal rations delivery. Performance Group, of which Mail.Ru Group owns 25%, is currently second only to Grow Food in profitability in Russia’s meal delivery market, according to Infoline. Foodtech is on the rise, and a partnership that has been formed between Mail.Ru Group and Sberbank may enliven it even further with a synergy of taxi and delivery services.

Corporations focus on mature companies and dominate the stages with a few sizable deals, $M

Seed 297 Startup Growth

Expansion 239 Maturity 204

172

113

93 84

61

38 35 32 30 28 25 25 18 16 16 18 15 11 9 13 9 9 7 5 6 4 2 0 0 0 2 1 00 000 2018 2019 2018 2019 2018 2019 2018 2019 Angels Corporation Fund State

24 Venture Russia | 2019: Results

S7, a sizable Russian airline, also left an imprint on the domestic venture scene. It shook hands with VCs at Emery Capital and RTP Ventures on an $8m round in GetTransfer, a vehicle booking and rent service.

A noteworthy trend of the past few years: corporations are becoming increasingly involved in international tech scouting. In April 2019, the Kaspersky Lab launched a global startup scouting for pilot and scale the best of them. In May 2019, MTS, one of this country’s largest mobile telecom operators, announced a search for startups in the Israeli, German and Singaporean markets. The goal was to launch pilot projects to integrate foreign solutions in the Russian company. In fact, it was Beeline, an MTS competitor in telecom, and X5 Retail Group, a huge foodstuffs retailer, that pioneered global tech scouting before. X5, for example, collaborates with Anagog, an Israeli company that develops artificial intelligence solutions.

Tech scouting appears to bring Russian companies both advantages and disadvantages, and quick access to advanced technology may be followed by problems with buying into an expensive startup.

Yet another trend to keep tabs on: Russian projects have unexpectedly flashed on the radars of large Asian corporations. For example, in 2019 the Chinese tech leviathan Huawei purchased patents and took over the team of Vocord, a developer of face recognition solutions. Huawei’s compatriots from Alipay (Alibaba Group) set up a JV in October with USM, a Russian holding company co-owned by the billionaire Alisher Usmanov, Mail.Ru Group, Megafon (a large telco), and the government-owned Russian Direct Investment Fund. The JV is to process client payments and operations at Ali Express Russia.

Other global players are also considering Russia’s technology potential. JD.com, Samsung, LG, Nvidia, Honeywell and ExxonMobil are among those.

Funds invest most heavily, focused on early stages, number

Seed 112 Startup Growth Expansion 86 Maturity

46

32 30 26

18 18 17 18 14 12 11 8 10 9 9 7 7 6 6 4 5 4 4 4 4 5 2 2 0 0 0 0 1 1 0 1 1 0 2018 2019 2018 2019 2018 2019 2018 2019 Angels Corporation Fund State

25 Logistics and edtech win the hearts of investors

B2B and B2C deals were equally attractive in 2019 (112 and 118 transactions, respectively), with B2C by far outshining B2B in the investment amount ($537m vs. $332m). That said, B2B deals appear to be catching up as B2B projects currently offer increasingly cost-effective business models. Deals over software for business turned out to be the most numerous in 2019; money-wise, it was the second most invested segment. A deal that made headlines was a $10m investment from Baring Vostok and RTP Ventures in Voximplant that had come up with a cloud platform to communicate with customers. Voximplant now serves Sberbank, KFC, S7 and some other prominent clients. The business software segment is fast-growing in Russia; it topped $40m in 2018 and advanced determinedly last year to $70+m.

B2B deals, numbers В2В deals by investment amount, $M

Business software 30 Cybersecurity 147

Advertising & marketing 16 Business software 56

Industrial Tech 9 Industrial Tech 32

HR 7 Transport & Logistics 26

Hardware & Software 7 HR 13

Proptech 6 Proptech 10

EdTech 4 Analytics 7

Analytics 4 Hardware & Software 6

FinTech 4 Advertising & marketing 5

VR/AR 4 Medtech 5

Medtech 3 E-commerce 5

FoodTech 3 Fashion 4

E-commerce 2 Gaming 4

Gaming 2 VR/AR 2

Transport & Logistics 2 FinTech 2

Video-Audio 2 Document management 2

Agrotech 2 Agrotech 1

Communication 1 EdTech 1

Cybersecurity 1 Total FoodTech 0.5 Total Document management 1 112 Video-Audio 0.17 331.8 Fashion 1 Legaltech 0.15

Legaltech 1 Communication 0.14

26 Venture Russia | 2019: Results

B2B Exits

Date Target Investor Deal’s value, $M Development stage

Jan.19 Wrike Vista Equity Partners 22.3 Maturity

Jan.19 Medialogia VTB 30 Maturity

Jan.19 Streetbee Bemyeye 15 Startup

Feb.19 Pass24 Lanit 2 Startup

Mar.19 Nginx F5 Networks 670 Maturity

Apr.19 Scan to Buy Yandex.Market 3 Startup

May.19 HeadHunter IPO 220 Maturity

May.19 Worki Mail.ru Group 10 Expansion

May.19 CloudPayments Tinkoff Bank 3 Startup

May.19 Vocord Huawei 38 Growth

May.19 MyOffice Kaspersky Lab 5 Maturity

Jul.19 Relap.io Mail.ru Group 6 Startup

Aug.19 RRT Global KBR 9 Startup

Sep.19 Geosteering Technologies Zyfra 9 Growth

Oct.19 Urus – Smart Digital Services Alexander Auzan 0.12 Startup

Nov.19 Syntacore Yadro 10.2 Startup

Dec.19 Shift Xometry 3 Startup

Dec.19 Axenter GK Ryurik 1.54 Startup

Dec.19 Online Patent n’RIS 3 Startup

Dec.19 Top Delivery Beta Pro 7 Growth

Dec.19 GetIntent Gazprom-Media 20 Startup

27 Logistics and edtech win the hearts of investors

It’s Goldman Sachs’ growing appetite for Acronis’ cyber security expertise that made their deal a leader by money attracted in the B2B segment last year. A swarm of hackers that had been after the corporate world prior to that might have swayed the banking titan in favor of the deal.

In the B2C segment, e-commerce foreseeably outstripped all the rest in both numbers and moneys. Russia’s e-commerce market has been advancing rapidly; in 2018, for example, it grew 60% yoy to $26bn, according to the Russian Association of Internet Trade Companies. Before that, the market had been swelling for three years running at a CAGR of 20%. In 2019, the intensifying interest in the segment culminated in an unrivaled 20+ deals. The investment record in the segment was set when Ozon received a sizable $150m convertible loan from its investors.

Education and logistics may become the next investor magnet in 2020. Edtech was the runner-up by the number of deals (16%) and the third-largest in terms of money (10%) in 2019. Two years before, the segment fared much more modestly. According to Skolkovo Foundation estimates, the 2019 edtech market was about $470m, with the online English language tutor Skyeng leading the pack in revenue.

B2С deals, numbers В2С deals by investment amount, $M

E-commerce 22 E-commerce 176

EdTech 21 Transport & Logistics 159

FoodTech 12 Education 54

Transport & Logistics 10 Video-Audio 44

FinTech 9 FoodTech 24

Medtech 7 Gaming 18

Travel 4 Travel 15

Business software 3 Medtech 10

Gaming 3 FinTech 8

Marketplace 3 Application Development 6 Marketplace Video-Audio 3 3 Software & hardware Fashion 3 3 HR Advertising & marketing 2 2 Business Software Communication 2 2 Media Event Management 2 2 Cleaning HR 2 2 SportTech Media 2 1 Advertising, Sales & PropTech 2 Marketing 1 Analytics 1 Event Management 1 Application Development 1 Fashion 0.50 Total Total Cleaning 1 Analytics 0.35 Software & hardware 1 118 Communication 0.34 536.9 SportTech 1 PropTech 0.08 Other 1 Other 0.14

28 Venture Russia | 2019: Results

The transport and logistics segment may now thrive on a growing interest in venture investing from Russian Railways, State Transport Leasing Co., TransContainer (Delo Group), Transmashholding (a rolling stock manufacturer), PEC (cargo shipments), Delovye Linyi (Business Lines), and some other big logistics players.

B2С Exits

Date Target Investor Deal’s value, $M Development stage

Jan.19 Avito Naspers 1,160 Maturity

Apr.19 GetLean Severgroup 3 Startup

May.19 Panzerdog MY.Games 5 Growth

Alexei Belyankin (Legionfarm Jul.19 Legionfarm Startup founder) 1.3

Aug.19 iGooods Joom 5 Startup

Aug.19 YouDrive Mail.ru Group 45.5 Expansion

Sep.19 Busfor BlaBlaCar 88.3 Expansion

Sep.19 Ozon BVCP & AFK Sistema 50 Maturity

Sep.19 Bookform Yandex 0.8 Startup

Oct.19 Partiya.edi Yandex 4 Growth

Oct.19 Dating.com Sol Holdings 210 Expansion

Oct.19 GeoCV Occipital 7 Growth

Yuri Popov & Anton Yeremenko Oct.19 Potok Startup (FinTech Capital) 0.9

Oct.19 Healthy Food Dmitry Pronin 3.5 Startup

Nov.19 MagicLab Blackstone Group 2,850 Maturity

Dec.19 Tvzavr Ruslan Kaftanatiy 16 Growth

Dec.19 Skillbox Mail.ru Group 20 Growth

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E-commerce and Transport & Logistics accounted for 30% of all investments

Full-service 869 184 integration platform for investment professionals available as a single SaaS solution 181 Transport & Logistics theairr.com

Investor Family offices gets up to date, real-time visual reporting Accelerators tool to evaluate their investments. Social / impact funds 147 Private equity and venture Е-commerce capital professionals Everyone else willing to boost their investment decision Investment analysts process. can set up valuation process, keep track of the incoming pipeline and generate new 58 investment opportunities. Cybersecurity

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Legal officers 44 You get a visual reporting tool for both EdTech the team and investors of your funds can keep detailed records and easily manage KYC document flow. 35 Video-Audio Our service improves the manageability 32 of your investment vehicle and portfolio FoodTeсh companies 18 Industrial Tech 16 Accountants Gaming 15 We consolidate data from any front or HR 15 can create reports and monitor key Travel 10 back-office systems you use on a daily 10 financial metrics on all levels. MedTech 49 basis PropTech FinTech a multi-level solution that synchronizes the work of each parti cipant in investment process

We are happy to do custom integrations Request a DEMO : Other with any software you might be using! [email protected] 31 easy A year of conflicts

It was not a bad year on the venture market; but corporate conflicts made it worse. Some of Russia’s leading venture funds found themselves mired: Baring Vostok, Runa Capital and Russia Partners. Many investors and entrepreneurs were prosecuted in those controversies. The Michael Calvey criminal case that had emerged from a Vostochny Bank shareholder discord and ended up tarnishing Baring Vostok, one of this country’s oldest funds, was perhaps the most aired of them all.

As a final touch, prosecuting attorneys pressed charges in December against successful entrepreneurs and Nginx founders Igor Sysoev and Maksim Konovalov in a legal action that sent shivers down the spines of many. Rambler Group, a Russian Internet holding company, accused the two of copyright infringement following Nginx’s $670m takeover by an American company called F5. Sergei Belousov’s Runa Capital had been one of the first investors in Nginx.

Some faced tough enough spats without law enforcement agencies involved. In another year-end corporate hubbub, Banki.ru, a domestic financial aggregator, saw tensions between Filipp Ilyin-Adaev, the founder of the service, and Russia Partners, a fund that held a minority stake in Banki.ru.

The unpredictable business climate and a bleak economic outlook cause Russian investors to set all sights on international startups. There were more than 140 international deals in 2019; investors sought to diversify portfolios and lower country-specific risks. This activity will likely help new domestic investors get on Russia’s Forbes lists. Some are already there — Dmitry Volkov, the founder of the large Dating.com service, for one. His company claims to have 73 million users; its 2018 revenue reportedly reached $200m. Mr. Volkov, one of Russia’s HNWIs ($750m net worth, according to Forbes), has set up a number of own funds, such as SDVentures and Real Estate Discovery Ventures, and invested in other funds, for example, Target Global, iTech Capital, Gagarin Capital, and 500 Startups.

32 Russian businesses return to public markets

It was HeadHunter’s IPO on NASDAQ in May that tuned the market to an optimistic note. No Russian company had held an IPO between 2017 and 2019 at all, and it had taken six long years for a high-tech developer to pluck up courage to do so since QIWI’s deal with TCS Group in 2013. HeadHunter first unveiled its IPO plans in December 2017; but another wave of U. S. sanctions forced the company to put its plans on ice. Last year, the shareholders — Elbrus Capital run High World Investment (59.99%) and Goldman Sachs Group controlled ELQ Investors (40%) — revisited the idea and floated 32% of HeadHunter’s capital.

Morgan Stanley, Goldman Sachs, Credit Suisse, VTB Capital, BofA-Merrill Lynch and Sberbank CIB orchestrated the deal and each received a 30‑day option to buy the stock. With an $11—13.5 per ADS floating range, the offering went at the maximum, and HeadHunter raised $220.1m at a post-IPO valuation of $675m. By the end of 2019, the company Alexei Solovyov, was valued at more than a billion dollars. Analysts Founder, A.Partners attributed the IPO success to HeadHunter’s leading First of all, HeadHunter’s IPO proved that the doors positions on Russia’s growing online recruitment to global stock exchanges were not shut even market which Talantech believes will grow 2.5 times for companies that viewed the Russian market as by 2025 to top $380m. Dsight’s Arseniy Dabbakh a priority. Most importantly, the case profiled the kind believes the HeadHunter deal was a milestone of player a Russian company must be to be able showing that Russian companies can be listed to go public in America — including aspects such as internationally despite the sanctions, and highlighting revenue, profitability, the right market share, growth the ability of Russian-originated funds to guide rate, etc. intricate transactions all the way through to the IPO stage. Secondly, the fact that Elbrus Capital bought 100% of HeadHunter from a strategic investor outlined There was a home-bred high-tech IPO, too. In July, a trend in which many funds tend to disregard market the International Medical Center for Cryo-storage standards and amend their investment mandates. We of Biomaterials (Gemabank is a brand name) floated its witnessed a situation where a fund turned its back shares on the Moscow Stock Exchange. The company, on the classical VC/PE approach. Not only did Elbrus which is part of the Human Stem Cells Institute and get unrestricted control over the company, but it also has been in the business since 2003, raised $2.3m took it over completely from a strategic investor. and was valued at $15.6m. The IPO was successful, and it took just an hour to complete the fundraising. In 2020, we expect a few more IPOs by Russian companies. I hope when the offerings do take place, we will not only have benchmarks to guide us but also positive news to spur further interest in VC/PE investing in this country.

33 Largest deals

The largest venture deals in 2019 (including exits)

Date Target Investor Deal’s Sector value, $M

Nov.19 MagicLab Blackstone Group 2850 Dating

Jan.19 Avito Naspers 1160 Marketplace

Mar.19 Nginx F5 Networks 670 Software & Hardware

May.19 HeadHunter IPO 220 HR

Oct.19 Dating.com Sol Holdings 210 Dating

Apr.19 Ozon Sistema VC, BVCP 150 E-commerce

Sep.19 Acronis Goldman Sachs 147 Cyber Security

May.19 Gett Access Industries, Baring Vostok, MCI, Volkswagen Group 120 Transport & Logistics

Sep.19 Busfor BlaBlaCar 88 Transport & Logistics

Sep.19 Ozon BVCP and AFK Sistema 50 E-commerce

Aug.19 YouDrive Mail.ru Group 46 Transport & Logistics

The largest venture deals in 2019 (excluding exits)

Date Target Investor Deal’s Sector value,$M

Apr.19 Ozon Sistema VC, BVCP 150 E-commerce

Sep.19 Acronis Goldman Sachs 147 Cyber Security

May.19 Gett Access Industries, BVCP, MCI, Volkswagen Group 120 Transport & Logistics

RDIF, BVCP, Flashpoint VC, RTP Global, Winter Capital, Jun.19 ivi.ru 40 Video-Audio Mudabala

Jul.19 Brainly Naspers, Runa Capital 30 Edtech

Prime Movers Lab, Y combinator, Liquid 2 Ventures, Jul.19 Momentus Space 26 Transport & Logistics Drake Management, Mountain Nazca

Nov.19 Ice Storm Altergate 15 Gaming

Concentric, Ad.ru, Mikhail Sokolov, Dmitry Eremeyev, Apr.19 Wheely 15 Transport & Logistics Oleg Cheltsov

Aug.19 Dostavista Vostok New Ventures, AddVenture, Flashpoint VC 15 FoodTech

Jun.19 Fasol Metro Cash & Carry, RDIF 10 PropTech

Emerging Travel Jul.19 LVL1 Group (Lev Leviev), Igor & Dmitry Bukhman (Playrix) 10 Travel Group

Dec.19 Yclients Elbrus Capital, Guard Capital 10 Business Software

Dec.19 Voximplant BVCP, RTP Ventures 10 Business Software

Jan.19 GetTransfer S7 Group, Emery Capital, Castel Capital 8 Transport & Logistics

Apr.19 Instamart Mail.ru Group, Lev Khasis, Alexander Mitroshenkov 8 Transport & Logistics

34 Venture Russia | 2019: Results

All Exits in 2019

Date Target Investor Deal’s value, $M Sector

Jan.19 Wrike Vista Equity Partners 22.3 Business Software

Jan.19 Medialogia VTB 30 Analytics

Jan.19 Streetbee Bemyeye 15 Analytics

Jan.19 Avito Naspers 1160 Marketplace

Feb.19 Pass24 Lanit 2 Security

Mar.19 Nginx F5 Networks 670 Hardware & Software

Apr.19 Scan to Buy Yandex.Market 3 FinTech

Apr.19 GetLean Severgroup 3 Edtech

May19 HeadHunter IPO 220 HR

May19 Panzerdog MY.Games 5 Gaming

May19 Worki Mail.ru Group 10 HR

May19 CloudPayments Tinkoff Bank 3 FinTech

May19 Vocord Huawei 38 Security

May19 MyOffice Kaspersky Lab 5 Business Software

Jul.19 Relap.io Mail.ru Group 6 Advertising & Marketing

Jul.19 Legionfarm Alexei Belyankin (Legionfarm founder) 1.3 Gaming

Aug.19 YouDrive Mail.ru Group 45.5 Transport & Logistics

Aug.19 RRT Global KBR 9 Industrial Tech

Aug.19 iGooods Joom 5 FoodTech

Sep.19 Busfor BlaBlaCar 88.3 Transport & Logistics

Sep.19 Ozon BVCP and AFK Sistema 50 E-commerce

Sep.19 Bookform Yandex 0.8 Marketplace

Sep.19 Geosteering Technologies Zyfra 9 Industrial Tech

Oct.19 GeoCV Occipital 7 VR/AR

Oct.19 Partiya.edi Yandex 4 FoodTech

Oct.19 Dating.com Sol Holdings 210 Dating

Oct.19 Healthy Food Dmitry Pronin 3.5 FoodTech

Oct.19 Potok Yuri Popov and Anton Yeremenko (FinTech Capital) 0.9 FinTech

Oct.19 Urus – Smart Digital Services Alexander Auzan 0.12 SmartCity

Nov.19 MagicLab Blackstone Group 2850 Dating

Nov.19 Syntacore Yadro 10.2 Business Software

Dec.19 Skillbox Mail.ru Group 20 Edtech

Dec.19 GetIntent Gazprom-Media 20 Business Software

Dec.19 Tvzavr Ruslan Kaftanatiy 16 Video-Audio

Dec.19 Top Delivery Beta Pro 7 Transport & Logistics

Dec.19 Shift Xometry 3 Industrial Tech

Dec.19 Online Patent n’RIS 3 LegalTech

Dec.19 Axenter GK Ryurik 1.54 Analytics

35 National Alternative Investment Management Association

National Alternative Investment Management Association is an industry body focused on promoting long-term capital in Russia. We work with the professional community, regulators, media and the public to increase awareness of alternative investments as a source of value creation and foster the development of capital markets in our country.

We focus on PE and VC investing, real estate and infrastructure, hedge funds, and impact investing.

We get support from leading The Association’s core activities include: investment funds, audit and legal • Developing industry-focused education projects, putting together firms, international SROs and a certification system for alternative investment managers, and other financial market players that delivering ongoing research on long-term capital markets. are our members and partners. • Hosting industry-wide events in Russia and abroad.

NAIMA is part of the EMPEA • Lobbying for a more investor-friendly legal environment. Industry Partner Network and supporter of the Institute of Modern Arbitration.

More information about NAIMA you can find on www.naima-russia.org/en/ The Venture World In partnership with Crunchbase

37 The venture market cools

The global venture activity wound down last year, ending up in a slack in both numbers and moneys. The number of deals dropped 23% from 30,350 in 2018 to 23,472 in 2019; total investment in startups shriveled from $325bn to $258.8bn yoy. The market sagged 20%, a record low in five years.

Europe showed a slightly different trend. Against a backdrop of an almost 26% yoy decrease in the number of deals from 7,794 to 5,777 (excluding exits) total investment grew considerably (28%) to a new $39.9bn record.

Exits shrank marginally across the world in numbers (11%) and in investment amount (from $587.3bn to $524.3bn yoy). A miniaturized replica of the trend was observed in Europe, with exits reduced by 7% in numbers and halved in investment (from $67.9bn to $32.5bn yoy).

The overall cooling can be attributed to fewer deals in China following its trade standoff with the U. S.; European venture investors revealed mixed emotions marred by Brexit. That said, 135 new unicorns emerged in 2019, and investors were on fire for e-commerce, artificial intelligence, medtech, logistics, and financial services.

The world’s largest deals included: the Chinese state-owned systems integrator Tenglong Holding Group ($3.7bn); Kuaishou Technology, a video app service ($3bn); the hotel chain OYO ($1.5bn); Chehaoduo, an online platform to sell cars ($1.5bn); Grab, an Asian ride-hailing service ($1.46bn); and a car-sharing service called T3 Mobile Travel Services ($1.45bn). The Indian shopping app developer One97, the food deliverer Rappi, the freight logistic company Flexport, the pharmaceutical platform JD Health and the co-working rent service The We Company (formerly We Work) each raised a billion dollars. A scandal that shook The We Company came as discomfiture to the entire venture industry and Softbank as a sizable global investor in particular. The latter had to take the startup from its founder and delay an IPO. The development appears to mark an unavoidable end to investor romances with all sorts of startup, and signal the need to focus on specific sectors and businesses.

38 Venture Russia | 2019: Results

World The global VC market began Exits decreased in numbers and to cool in 2019 moneys after a 2018 record

Number of deals Number of deals Investment amount, $B Investment amount, $B 30,350

27,657 26,771 26,272 1,956 1,898 1,844 1,870 23,662 23,472 325.0 587.3 1,635 1,442 18,211 524.3

258.8 1,116 13,883 167.4 953 154.4 210.4 294.8 245.2 326.1 109.4 231.7 186.0 66.8 50.5 146.4

2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019

Fewer deals at almost all stages 2019 investment lower at almost all stages, $B 2018 2019 2018 2019

1,233 1 angel angel 1,110 1

782 convertible_note convertible_note 3 641 1

767 corporate_round corporate_round 852 38 25 667 equity_crowdfunding equity_crowdfunding 634 1 1 2,412 pre_seed pre_seed 2,600 1 0 11,242 seed seed 9,329 10 4,152 9 series_a series_a 4,021 42 1,916 series_b series_b 40 1,783

47,115 1,399 series_c+ series_c+ 43,101 1,451

5,269 47 series_unknown series_unknown 4,711 30

39 The venture market cools

World The VC market sag told The AI, data and analytics sectors on all sectors (number of deals) saw an increase in investment in 2019, $B 2018 2019 2018 2019

Top 20 leading sectors

13,312 110.9 Software Software 11,851 109.1 6,019 66.1 Science and Engineering Science and Engineering 5,394 56.8 5,882 62.4 Information Technology Transportation 5,362 50.4 5,321 73.2 Data and Analytics Internet Services 4,766 47.0 5,374 60.1 Internet Services Financial Services 4,641 45.9 5,145 54.3 Health Care Health Care 4,528 44.7 4,513 Financial Services Data and Analytics 37.5 4,015 43.2

Commerce and Shopping 4,191 Information Technology 45.5 3,891 42.5

Hardware 4,399 Commerce and Shopping 79.9 3,845 41.0

Artificial Intelligence 3,632 Hardware 55.4 3,311 39.7

Media and Entertainment 2,695 Mobile 30.5 2,274 28.5

Transportation 2,470 Artificial Intelligence 23.6 2,252 27.6

Mobile 2,636 Biotechnology 31.1 2,218 23.0

Apps 2,285 Media and Entertainment 26.0 1,903 19.7

Sales and Marketing 2,019 Apps 22.0 1,792 18.0

Biotechnology 1,894 Real Estate 26.4 1,686 16.5

Consumer Electronics 1,943 Lending and Investments 28.0 1,605 16.5

Food and Beverage 1,813 Consumer Electronics 27.9 1,600 16.3

Real Estate 1,685 Food and Beverage 22.6 1,518 15.5

Education 1,531 Sales and Marketing 15.8 1,380 14.3

40 Venture Russia | 2019: Results

Europe Venture investment record broken Exits more than halved in the EU in Europe in 2019

Number of deals Number of deals Investment amount, $B Investment amount, $B 8,001 7,667 7,794 483 39.6 451 443 6,899 417 413 31.1 5,806 5,777 67.9 307 23.7 58.2 4,517 58.8 21.2

3,128 189 195 18.8 12.0 13.3 32.5 29.2 25.9 7.2 3.8 12.3 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019

Pre-seed rounds and the C+ stage Last year, investors in European were the key investor magnets assets preferred mature stages, $B in Europe last year (number of deals) 2018 2019 2018 2019

245 0.10 angel angel 182 0.08

122 0.15 convertible_note convertible_note 107 0.13

114 1.98 corporate_round corporate_round 114 2.55

403 0.40 equity_crowdfunding equity_crowdfunding 380 0.39

816 0.16 pre_seed pre_seed 861 0.14

3,212 2.34 seed seed 2,520 2.00

720 4.58 series_a series_a 717 5.49

285 5.12 series_b series_b 274 6.13

141 4.92 series_c+ series_c+ 173 10.69

1,572 8.82 series_unknown series_unknown 1,334 9.49

41 The venture market cools

Europe

The number of deals decreased Total investment in European deals across most sectors in 2019 was up yoy across most sectors, (number of deals) $B 2018 2019 2018 2019

Top 20 leading sectors

3,490 10.17 Software Software 2,550 14.98 1,558 5.90 Information Technology Science and Engineering 1,227 10.31 1,540 7.19 Science and Engineering Transportation 1,167 9.32 1,359 5.39 Data and Analytics Internet Services 1,003 7.26 1,222 3.84 Financial Services Financial Services 974 6.95 1,376 6.03 Internet Services Health Care 963 6.62

Health Care 1,138 Data and Analytics 4.11 823 6.55

Hardware 1,131 Information Technology 3.79 818 5.95

Commerce and Shopping 1,083 Commerce and Shopping 4.84 801 5.93

Artificial Intelligence 962 Hardware 3.93 738 5.23

Transportation 609 Mobile 2.49 467 4.85

Media and Entertainment 708 Artificial Intelligence 2.54 465 3.86

Apps 642 Biotechnology 3.99 426 3.70

Mobile 679 Media and Entertainment 2.65 423 3.20

Consumer Electronics 505 Apps 2.61 372 2.41

Sales and Marketing 555 Real Estate 1.62 351 2.33

Biotechnology 443 Lending and Investments 2.08 347 2.26

Real Estate 475 Consumer Electronics 1.56 342 2.22

Manufacturing 433 Food and Beverage 0.85 295 2.13

Food and Beverage 405 Sales and Marketing 2.25 274 2.12

42 News stories Key transactions of the year as reported by EWDN.COM News

Baring Vostok and Sistema provide $150 million convertible loan to Ozon

East-West Digital News, May 6, 2019 — Baring Vostok, With big capital injections in 2011 ($100 million), a major Moscow-based international PE firm, and 2014 ($150 million) and 2018 (up to $92 million), Ozon Sistema, a large Russian conglomerate, have provided is one of the most well-funded Russian e-commerce a 10 billion ruble convertible loan to Ozon. companies. The funds will help the online retailer “maintain Ozon was founded in 1998, with an initial focus its current growth rate and develop its warehouse on books, CDs and DVDs. On the footsteps of Amazon, infrastructure, IT-platfrom, marketplace and financial the site progressively enlarged its assortment. services offerings.” Ozon also needs financial means Ozon's existing logistics center in Tver. Photo to “aggressively grow its market share.” credits: Ozon The company is number one among multi-category online retailers in Russia, but only number four in general e-commerce ranking.

44 Venture Russia | 2019: Results

Russian sovereign fund agrees $3 billion high-tech investment partnerships with Middle East, Chinese players Stan Martynyuk, East-West Digital News, June 11, 2019 — each patient, and Motorica, a startup that designs and Last month the Russian Direct Investment Fund (RDIF) manufactures functional prosthetics. received $2 billion from foreign investors to support The RDIF is interested in AI and adjacent technologies Russian startups. The money came from sovereign funds such as cloud computing, data centers. and global corporations in the Middle East and Asia, In a separate deal, the RDIF and the China Investment including the UAE. Corporation (CIC), a sovereign wealth fund, intend to set up The RDIF plans to invest variable amounts in up a $1 billion Russian-Chinese R&D fund for AI, innovative to 10 startups every year. Among them are Oncobox, materials and space technologies. Since 2012, the RDIF which helps oncologists decide which drug to use for has inked a variety of agreements with Chinese players.

Russian-founded Veeam Software sold for $5 billion to major US investor Adrien Henni, East-West Digital News, January 10, Timashev was also a shareholder of 5nine, a software 2020 ­— Veeam Software, a global leader in cloud data company which was sold to Acronis a month ago management software, is to be acquired by top software in a transaction that perhaps exceeded $100 million. investor Insight Partners. The deal, which values Veeam Although they spend the better part of their time at “approximately $5 billion,” is expected to be closed outside their native country, Forbes Russia counts in March. Baronov and Timashev among Russia's richest Veeam raised $500 million in an equity funding round businessmen. from just a year ago. A number of other successful tech companies founded Company founders Andrei Baronov and Ratmir by Russians operate from other countries. Among them Timashev are figures of the Russian and international tech are Acronis, Badoo, Evernote, Nginx, Kaspersky, Parallels, scene. They are behind ABRT, a successful venture fund. Telegram and WayRay.

Naspers takes full control of Avito, Russia's leading classifieds site Adrien Henni, East-West Digital acquired a controlling stake News, January 28, 2019 — Naspers's in the company. classifieds business, OLX Group, has One of the most successful taken full control of Avito.ru, Russia's Internet companies in Russia, number one classifieds site, boosting Avito was founded in 2007 by its stake from 70.4% to 99.6%. Swedish businessmen Filip Among the minority shareholders exiting the company Engelbert and Jonas Nordlander. Vostok Nafta Investment, is Swedish investment firm Vostok New Ventures (VNV, one of its early investors, called it the “real romance” of its previously known as Vostok Nafta Investment), which will portfolio. get gross proceeds of $540 million. Avito claims to publish 400,000 new classifieds every The $1.16 billion deal valued Avito at $3.85 billion — day and process 120 new deals per minute. The number up from $2.7 billion in 2015, when Naspers of classifieds on the platform exceeds 48 million.

45 News

Alibaba, Mail.Ru, MegaFon and RDIF commit to invest $400 million in social commerce JV Adrien Henni, East-West Digital News, June 6, 2019 — AliExpress Russia, the B2C marketplace owned by Following regulatory approval, Alibaba, Mail.ru Group, Alibaba, already controls a large part of the e-commerce Russian telco MegaFon and sovereign fund Russian flows between China and Russia. Keeping this name, Direct Investment Fund (RDIF) are confirming their the JV will operate on the domestic and cross-border social commerce joint venture. markets. Alibaba will invest $100 million and contribute The JV will benefit from Mail.ru's leading positions AliExpress Russia into the joint venture. Mail.Ru Group in Russia's social media, online gaming, email services will contribute $182 million. The RDIF will invest and online communications. $100 million while MegaFon will sell a stake in Mail.ru Recently Morgan Stanley predicted the Russian in exchange for a stake in the JV. e-commerce market could exceed $50 billion by 2023.

Economic and voting interests of AliExpress Russia JV shareholders.

At Closing With RGIF Call Option Exercised1

Economic Rights Voting Rights Economic Rights Voting Rights

Alibaba Group 55.7% 49.9% 47.8% 47.6%

MegaFon 24.3% 30.2% 24.3% 26.4%

Mail.ru Group 15.0% 18.7% 15.0% 16.3%

RDIF 5.0% 1.2% 12.9% 9.6%

Total 100.0% 100.0% 100.0% 100.0%

Source: Mail.Ru Group

Phystech Ventures and North Energy Venture launch $40 million fund to support AI, robotics projects Stan Martynyuk, East- Terra Fund II's portfolio West Digital News, includes 11 Russian tech May 7, 2019 — Russian companies operating venture capital firms in the Middle East, Phystech Ventures and South-East Asia, and North Energy Ventures North America, in which have announced a joint Phystech Ventures and $40 million fund. Dubbed North Energy invested 'Terra Fund II,' the fund earlier. will focus on mature projects in the fields of artificial “On the markets of the Middle East, Africa, and South intelligence, machine learning and robotics projects, East Asia, there is a steady demand for effective economic VC.ru reported. solutions and alternative products to solutions offered by Among the 24 investors in the fund are large global majors,” said Danila Shaposhnikov, partner at North banks, corporations, RVC, owners of oilfield service Energy Ventures. companies and international tech entrepreneurs, according to RVC.

46 Venture Russia | 2019: Results

Russian-founded web server leader acquired by US company for $670 million

East-West Digital News, March 12, 2019 — Nginx “Whether you know it or not, you use Nginx every (pronounced “engine-x”), a US-based open source web day of your life when you post a photo, watch streaming server publisher with Russian origins, has been acquired video, purchase goods online, or log into your applications by F5, a global leader in multi-cloud application at work,” the company justly claims. services. The transaction amounted to “approximately Nginx's founder, Igor Sysoev, is a former system $670 million,” the companies announced, for the full administrator at Rambler, a pioneer Russian web acquisition of Nginx. company. He initially released his server software in 2004. Nginx is one of the most successful Russian Internet Incorporated in Moscow in 2011, the startup later moved technologies of the past twenty years. Its solution its headquarters to San Francisco, raising equity rounds is currently used by more than 374 million websites across from a variety of international funds. the world, including two thirds of the highest traffic sites.

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